Most consumer discretionary businesses succeed or fail based on the broader economy. Thankfully for the industry, all signs are pointing up as discretionary stocks have gained 23.9% over the past six months, beating the S&P 500’s 16.8% return.
Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks we’re swiping left on.
Charter (CHTR)
Market Cap: $35.81 billion
Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.
Why Does CHTR Fall Short?
- Performance surrounding its internet subscribers has lagged its peers
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Underwhelming 9.8% return on capital reflects management’s difficulties in finding profitable growth opportunities
Charter is trading at $262.75 per share, or 6.3x forward P/E. Read our free research report to see why you should think twice about including CHTR in your portfolio.
Lindblad Expeditions (LIND)
Market Cap: $719.9 million
Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ: LIND) offers cruising experiences to remote destinations in partnership with National Geographic.
Why Should You Dump LIND?
- Poor expense management has led to an operating margin of 3.8% that is below the industry average
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.2 percentage points over the next year
- Push for growth has led to negative returns on capital, signaling value destruction
Lindblad Expeditions’s stock price of $13.40 implies a valuation ratio of 6.4x forward EV-to-EBITDA. To fully understand why you should be careful with LIND, check out our full research report (it’s free).
Planet Fitness (PLNT)
Market Cap: $8.42 billion
Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.
Why Are We Hesitant About PLNT?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 3.5 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $99.84 per share, Planet Fitness trades at 31.6x forward P/E. Dive into our free research report to see why there are better opportunities than PLNT.
High-Quality Stocks for All Market Conditions
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